In addition to the pledges to end coal use and to reduce methane emissions world leaders who attended this year’s UN Climate Change Conference (COP26) in Glasgow also convened to revamp global carbon markets as well as improve regulations on carbon trading. These are considered to be a key tool to help transition to decarbonisation.
Carbon trading refers to a method that allows a government to set limits on how much carbon which can be released and divides that number into units. These units are assigned to different industries, groups and companies, and may later be traded just like any other commodity.
The carbon trading concept could eventually boost investments in eco-friendly solutions, since the price put on carbon makes fossil fuel projects less competitive, and simultaneously encouraging green energy sources like solar and wind.
In fact it is the case that The International Emissions Trading Association says carbon trading could be able to cut by half the costs of implementing national emission targets, resulting in savings of around $225 billion annually in 2030. It further claims that it could aid in the elimination of 5 billion tons of CO2 per year without additional costs.
A number of nations have national emissions trading systems that are in operation – and been involved in cross-border emission trading – the COP26 meeting saw participants come to an agreement on a set of clear universal guidelines for international emissions trading.
Countries that are struggling to reduce emissions may be able to part-time meet their climate goals by buying offset credits from countries that have succeeded in reducing their own emissions.
The agreement also permits the establishment of a separate carbon offset market that is governed by the UN that allows private and state organizations can trade emission credits by implementing low-carbon initiatives.
For instance, one person can pay another party to build a solar-powered facility instead of coal-burning power plant. This latter, and, more broadly the entire globe will benefit from greener energy sources, while the former could generate carbon credits to the project.
After approving the agreement the world leaders finally ratified the Article 6 in the Paris Agreement, which had been put off for six years due to several disputes between nations.
This agreement has also tightened the rules regarding double counting credits, which prevents carbon credit from counting both by the country selling them as well as the buyer.
Carbon credit exporters
Although it has global implications in its effects but the implementation in Article 6 is expected to have distinct implications for developed markets as well as emerging markets.
The majority of developed countries will likely to be carbon credit buyers and the majority of emerging markets are likely to be exporters of carbon credits on the carbon credit exchange. Based on this, the rules for international trade will bring emerging markets huge opportunities.
For instance the Brazilian Ministry of the Environment claimed that the agreement was the result of a “Brazilian victory” that will see the country expected to become an important exporter of carbon credit. In light of the fact that Brazil is the home of a large portion in the Amazon and has a huge potential to develop new renewable power projects, introduction of Article 6 is tipped to increase investment in projects that are that are designed to drastically reduce emissions.
Additionally, the agreement will also provide support emerging markets with the creation of an adaptation fund. About 5% of the profits from offset trades will go into the account, and will help less-income countries with their attempts to counter the impacts on climate change.
Indonesia exploring carbon trading
While carbon taxes and emission trading schemes are mainly focused on countries with higher incomes Some new markets have made strides in this regard.
Mexico, Colombia, Chile and South Africa are among those who have planned or implemented an emission trading plan, also known as a carbon tax.
Another country that is likely to be added to in the coming days is Indonesia.
In the middle of November, international media informed that Indonesian government has ratified new carbon trading.
Like other carbon trading systems the Indonesian model will comprise a system known as cap-and trade in which a cap is set for the overall degree of pollution. allowances are exchanged between different businesses.
The country is expected to implement a carbon tax April next year. the carbon market being fully developed to go live in 2025.
Indonesia estimates that, with no international assistance the country will be able to cut emissions by 29 percent by 2030. However the figure can rise up to 41% with foreign funding and the latest technology.
The door is open to greenwash?
Although it is considered by many as an essential tool to help towards carbon reduction but emissions trading is not generally praised.
The system, according to critics, could result in greenwashing and might encourage industrialized nations to offset, and not reduce carbon emissions through the purchase of carbon credits from other countries.
In reality some environmental groups claim they fear that this system may result in carbon credits being transferred from one part of the world to other with little environmental benefits.
In fact, Tina Stege, the Marshall Islands’ climate envoy advised that a lot of work is needed in order to reap the benefits of the COP26 accords.
“On Article 6, we must be vigilant against greenwashing, safeguard the integrity of the environment and safeguard human rights as well as those of the indigenous,” she wrote on Twitter.
“But the effectiveness of a plan is as effective as its execution. Everyone are now required to go home and begin to meet your Glasgow as well as Paris promises.”
